The Long and Short
Solid results for Klabin but better relative value away
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Klabin, the packaging producer headquartered in Brazil, reported solid fourth quarter results with gains in earnings and total production. Net leverage is high but should slowly fall. Still, relative value looks better in some of its peers, such as Suzano.
Klabin reported R$1.82 billion in fourth quarter EBITDA, representing an 8% improvement year-over-year and about flat to the preceding quarter, maintaining margin in the mid-30% area, though notably weaker than third quarter as lower prices depressed gross margins. Generally, the quarterly print was broadly in line with market expectations as the company completes the year, generally in compliance with provided guidance, and embarks on a new financial cycle with targets to deleverage post the forestry acquisition that has taken net leverage to nearly 4.0x. In the quarter, total production of pulp and paper was 1.05mt, 2% higher year-over-year and a 7% delta versus the third quarter primarily the result of restarting operations from unscheduled stoppages in the preceding period.
In the pulp business, sales volume was 400kt in the fourth quarter, 3% lower than the fourth quarter the year before. For the full 12 months of 2024, sales volume was 6% down compared to 2023, due to the impact of lower production volumes. However, an operational highlight was the performance of long fiber and fluff, which posted an increase of 4% in sales over the same period. In the paper segment, sales volume in 4Q24 was 340kt, a 15% increase compared to the fourth quarter of 2023, driven by the ramp up of production volumes and the market recovery of containerboard operations. These data more than offset the production impact from the maintenance stoppage at the Monte Alegre-PR unit in the fourth quarter. The paper business closed the year with an increase in sales volume of 22% compared to 2023. In packaging, sales volume in the fourth quarter was 273kt, an increase of 11% compared to the same period 2023.
Total revenues were R$5.3 billion in the quarter as Klabin posted growth at all segments and reported a year-over-year delta of 17%. The pulp business grew revenue by 20% year-over-year on the back of higher prices for all fibers as well as the foreign exchange assist from the stronger dollar, which helped offset the decline in volume. In the paper business segment, fourth quarter revenues increased by 19% year-over-year, principally due to the containerboard sub-segment (especially kraftliner) where Klabin reported a sales increase 38% in volume and 26% in prices. In the packaging business, revenues increase by 14% year-over-year as demand was robust and prices improved in the corrugated box segment. Pulp cash cost was R$1,172/t in the fourth quarter, an 11% decline year-over-year as a result of operating cost synergies originating from Project Caetê, which reduced the cost of fibers by about R$170/t. Energy revenue was higher due to improved average prices and a lower cost linked to other variables, all of which more than compensated for price increases in chemicals, more particularly caustic soda. Total cash cost was R$3.5 billion in 4Q24, 20% higher year-over-year: cost of goods sold was R$2.6 billion in the fourth quarter, 16% higher than a year before, given higher maintenance costs, the impact of the maintenance stoppage at the Monte Alegre-PR unit in the fourth quarter and other variable costs, reflecting the appreciation of the US dollar against the Real.
EBITDA was R$1.8 billion in the fourth quarter, 13% higher than the same period in 2023, reflecting higher prices of pulp and kraftliner, better sales volume in the paper and packaging business and the appreciation of the US$ against the Real. These drivers more than offset the higher cash cost in the period. Now after fully accounting for the forestry acquisition in the third quarter, net debt ended the year at R$33.36 billion, equating to a 3.9x net debt/EBITDA ratio (vs. 3.9x in 3Q24 and 3.3x in the corresponding period last year). Liquidity remains ample and the company retains access to its $500 million revolver, scheduled to mature in 2026, sufficient to fund operations, dividends and ongoing capex plans.
Against a background of relatively stable financials likely in the sector in the near term, free cash flow generation should help drive a slow deleveraging, boosted also by the company’s strategic plan to form an SPV with its new Project Caetê assets that will see an inflow of about R$1.8 billion in the first half of 2025. Pro-forma this cash receipt, net leverage should decline by about 0.2x. Given the balance sheet trajectory, investors can look at relative value by comparing the Klabin capital stack to Suzano, noting that the M&A overhang of the latter has materially receded in recent quarters. There is better relative value in the larger, higher rated, more liquid Suzano complex. Though Suzano should find new acquisition targets globally after retreating from the International Paper transaction last year, the bite sizes should be smaller with a parallel strategy to deleverage its balance sheet. One of these targets may be Lenzing, an Austrian company that is the majority owner of LD Celulose, a Brazilian based dissolving pulp producer. Suzano already owns 15% of the European credit and increasing to 30% or more will likely require a bid for full control. This makes LD Celulose an indirect relative value play as a proxy for Suzano risk.
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